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Another option to decrease spending is to increase taxes. That would of cause target the rich more, whereas increasing the interest rates is usually a benefit for the rich and hurts everyone else.
No wonder why increasing taxes instead of interest rates are never discussed to tackle inflation.
It's also vastly easier for the Fed to adjust interest rates than for Congress to adjust taxes.
Hell, it took them weeks to elect a speaker, could you imagine a debate over taxes!
it took them weeks to elect a speaker
And the best they could come up with is Mike fucking Johnson.
That would of cause target the rich more
Though we should definitely raise taxes on the top 3 quintiles for a wide variety of reasons, your statement here is specifically why raising taxes to fight inflation doesn't really work.
The vast majority of consumer spending is non-discretionary
Caveat: I'm no economist.
Despite the clear desire to see mass layoffs and unemployment so we will slow all our damn spending, the usual club to make that happen isn't working. Labor is strong. Support for unions is strong.
To explain this, I'd look at what has changed. I believe stock buybacks have been extremely high of late and that would be my guess. The big companies aren't leveraged so, just like how the rates aren't affecting recent home buyers who bought before the hike, they also aren't hurting companies as much as would normally be the case.
Another possibility is lingering effects of boomers taking COVID as a sign to retire, creating a labor shortage and putting pressure on companies not to have a layoff because they are worried they might have trouble re-hiring folks when the economy cools off.
If anyone else has ideas, I'd be curious. I might not be right about the cause, but I'm right about looking at what is different right now.
Since the article is quoting some of the top economists in the world, I would t let not being one really limit your options for commenting.
Here’smy hot take: economists have discussed sticky prices and sticky wages - which is a (imho) crappy way of describing effectively friction in economics. I wonder if what we are seeing here is sticky consumer spending. Normally we’d expect spending to react most quickly to interest rates and inflation, but people have gotten used to a certain level of spending and escalating debt, and so they might simply feel (or need to feel) unaffected by the fed changes.
Honestly, until we update the idea of an economic rational actor, I don’t think we’re going to get very far. In fact I think we risk getting further afield the longer we persist, and the more difficult it will finally be to realign everything.
Honestly, until we update the idea of an economic rational actor, I don’t think we’re going to get very far. In fact I think we risk getting further afield the longer we persist, and the more difficult it will finally be to realign everything
I agree. The idea of humans being rational is so divorced from reality it makes me wonder if economists know real people.
To be fair, they don’t get invited to a lot of parties.
Another possibility is lingering effects of boomers taking COVID as a sign to retire, creating a labor shortage and putting pressure on companies not to have a layoff because they are worried they might have trouble re-hiring folks when the economy cools off
This is so rarely brought up and is such a massive fucking deal that it's criminal not to discuss it.
Understandable. Nothing's worse for the economy than a strong economy. /s
Economics is basically voodoo, isn't it?
Some of my worst grades were in Econ class because it’s really hard for me to get beyond the fact that the answers to Econ questions always have an asterisk at the end since we don’t know what the future will hold.
It’s like, yeah we say “all things equal” something should happen in a certain way. And in the vacuum of a classroom maybe that’s OK. But it’s really all just educated guesses. And really that’s the best that we can do, and maybe that’s just fine. But when I hear stuff like “economists predict [x]…” I kinda roll my eyes.
Economics 101 is like physics 101. It only makes sense in a vacuum, with no friction, and no vibration. Or to put it in economics terms, it only works with perfect consumer knowledge, no barriers to entry, and if the future is accurately predicted by the past.
So yeah, voodoo.
And as everyone knows, no actual economist learns anything more than econ 101
When consumer spending is very high, inflation continues to rise because there is not an increase in supply. (Consumers are spending more to effectively get almost the same amount of things as before).
This is, obviously, bad if unchecked.
The Federal Reserve is like a cat that can't make up its mind about whether it wants to be inside or outside.
I work because I don't have a choice and I spend my money because even saving 100% of my gross won't get me even remotely close to affording a house because they keep going up in price faster than my income does.
If the people aren’t paid, and costs are up, then the 70% of the economy that is powered by spending will not be affected. Wild!
I don’t believe historic models can accurately account for today’s level of globalisation.
strong economy
Oceania has always been at war with Eastasia.
It’s a very strong economy just not for the bottom 90% of people.